Five credit myths that can cost you money

There are hundreds of myths about credit and debt. They range from the somewhat reasonable to the ridiculous. The bottom line: Just because you’ve heard them all your life doesn’t mean they are true. A little legwork on the Internet or a conversation with a credit expert at a bank, mortgage company, or nonprofit credit counseling service may help you arrive at the truth. Here are five myths that can cost you money:

1. One credit score tells you all you need to know. So you looked up your credit score with Experian, you were satisfied with the report and moved on. Creditors take a much different approach. Some creditors will pull all three of your credit reports in order to get a more complete picture of your payment habits. Others, such as auto loan lenders or landlords, tailor their search to fit your performance in a particular location or area.

Credit scores from the three major services are rarely, if ever, identical so you really do need to look at what each of the three major credit bureaus have for your credit history and what your score is with each. The three major bureaus are: Equifax, Experian, and TransUnion.

2. I’m only responsible for half of a joint debt: Just because you get a loan with another person doesn’t mean you’re responsible for only half of it.  Both you and the co-borrower are fully responsible for the debt. So if the cosigner is your spouse and you end up going separate ways, the lender will hold you – and your spouse – individually responsible for the whole debt.

Thus, if an agreement is reached, don’t just tell it to the judge. Let the credit issuer know as well. The same applies in most other situations in which you cosign for a loan, like auto and student loans.

3. My high income and credit score net the best credit card deals. If you are an affluent customer with an excellent credit history, chances are you get tons of credit card offers that come with rewards. But credit cards with these kinds of reward programs often come with a catch: Interest rates are generally higher. And in many cases, these higher-end cards have annual fees.

The cards with the lower rates lack the attractive rewards, but are also less likely to have annual fees. So look beyond that prequalified offer that will get you thousands of miles and check what the interest rate and annual fee are before you apply. The rewards, which include airline miles, hotel stays, and cash rebates, may be worth the fee, which is usually waived the first year.

4. All mortgage and home equity interest is tax deductible. This is true for most middle-income earners, but the federal government has a $1 million cap on mortgage interest. There are also limits on interest for home equity loans. The cap for home equity loans is $100,000.

You can take out more than $100,000 under a home equity loan and still deduct the entire interest if the money goes for home improvement, like adding a wing to your house. A tax consultant can fill you in on the details. 

5. Credit cards from retailers are often a good deal. Be sure to read the fine print on the credit cards from your favorite retailers. Many of them might offer you a percentage off your purchase for signing up and a 0 percent balance introductory period. But if you don’t pay off the debt completely by the end of the grace period, you could be retroactively charged for all interest for that period, which in some cases could be 12 or 24 months. You could be hit this way even if you are just a few dollars short.

You are probably better off looking at cards that offer rewards for shopping. You can get cash back on your purchases or points that you can trade in for merchandise.

– Daniel Tulbovich is co-founder of Credit-Land.com. He writes frequently on credit-related topics.